Arbeitspapier

The enforcement of mandatory disclosure rules

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This paper examines the incentives of a firm to invest in information about the quality of its product and to disclose its findings. If the firm holds back information, it might be detected and fined. We show that optimal monitoring is determined by a trade-off. Stricter enforcement reduces the incentives for selective reporting but crowds out information search. Our model implies that (i) the probability of detection and the fine might be complements; (ii) the optimal monitoring policy does not necessarily eliminate selective reporting entirely; (iii) even when there is some selective reporting in equilibrium and more stringent monitoring is costless, increasing the probability of detection might not be beneficial; and (iv) when society values selectively reported information, the optimal fine might not be the largest possible fine.

Language: Englisch

Bibliographic citation: Series: CeDEx Discussion Paper Series ; No. 2016-04

Classification: Wirtschaft
Asymmetric and Private Information; Mechanism Design
Information and Product Quality; Standardization and Compatibility

Subject: strategic information transmission
distrust effect
confidence effect
monitoring
penalty
fine
sanction
detection probability

Event: Geistige Schöpfung

(who): Dahm, Matthias
González, Paula
Porteiro, Nicolás

Event: Veröffentlichung

(who): The University of Nottingham, Centre for Decision Research and Experimental Economics (CeDEx)

(where): Nottingham

(when): 2016

Handle: http://hdl.handle.net/10419/163005

Last update: 10.03.2025, 11:42 AM CET

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Object type

Arbeitspapier

Associated

Dahm, Matthias
González, Paula
Porteiro, Nicolás
The University of Nottingham, Centre for Decision Research and Experimental Economics (CeDEx)

Time of origin

2016

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